When Coronavirus forced China to pause the industrial production, it sent shockwaves across the world. Multiple businesses collapsed, supply chains were cracked open, and industries including automobiles, electronics, pharmaceuticals, and medicines were all severely dampened.
In the meantime, countries across the world who had outsourced production to the Red Dragon had to come to terms with a new harsh reality.
So, it was evident that You can’t always rely upon on China and perhaps it’s time to pack the bags and move the manufacturing units somewhere else.
However, do bear in mind that this isn’t exactly a new development. The exodus has been underway for a while now. Nike’s supplier moved out of China in 2016. Apple and Foxconn began churning out iPhones in India last year. Clothes, toys, and cardboard are now being increasingly made and manufactured in smaller countries like Myanmar and Bangladesh. And China has been hit hard by it and no longer has a monopoly on production.
Most people attribute this to rising labor costs. After all, socio-economic conditions have improved vastly since the turn of Millennium. People in China no longer want to work in sweatshops. They want to work at Alibaba. And as a result, the factory work is losing its shine.
In fact, between 2016 and 2020, manufacturing wages rose from $5 an hour to $6.5 per hour and countries like Vietnam are crushing China on this front.
There’s also the environmental consideration.
For the past 3 decades, China has grown exponentially on the back of a manufacturing revolution buoyed by a supply of cheap loans, cheap labor, and easy access to raw materials. Toxic factories increased across the country burning dirty fuel, most notably coal; turning the blue skies of northern China into a dark cesspool of carbon and sulfur dioxide. The accompanying economic boom also resulted in an upward demand for motorized vehicles, further deteriorating the air quality in the country. Pollution masks became a staple among Chinese citizens and by some estimates, over a million people were expected to die prematurely.
By 2015, the collective call for action was so enormous, that the Chinese top brass had to sit up and had to act quickly. Within just one year, China saw extensive closures of polluting factories, and large fines were inflicted on other non-compliant actors. The state also began working on getting its industries future-ready by mandating companies to adhere to strict emission standards using modern eco-friendly technology.
And all these costs add up. Meaning it’s been transparent for a while now that producing in China is no longer cost-effective. So, you shouldn’t be astounded to see many manufacturers their shift base forever.
But China didn’t develop into the world’s manufacturing focal point by playing the cost game alone. For years, they’ve been nurturing their business ecosystem and prioritizing operational efficiencies above all else. We are talking about large industrial hubs with a network of suppliers, distributors, manufacturers, and regulators all tightly merged into one seamless megastructure.
Besides, they also have an excellent export infrastructure, great transportation systems, a low taxation regime (on exported goods), and a currency that is often artificially devalued to make exports cost-competitive.
But more importantly, you have to remember that supply chains are not built overnight. Establishing a nexus of suppliers, creating industrial capacity, and ensuring quality at low cost is quite a big feat. It takes time, and it takes a lot of know-how. And it’s not like you can move manufacturing units and set up a new one somewhere else without spending a fortune.
So, despite what anyone says, China isn’t going anywhere. At least, not anytime soon.
Thanks for sharing such a useful information...😊👍
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